Trans Tasman Energy Group Pty Ltd v The State of South Australia

Supreme Court of South Australia
(Civil)
TRANS TASMAN ENERGY GROUP PTY LTD v THE STATE OF SOUTH AUSTRALIA & ORS
[2022] SASC 87
Judgment of the Honourable Chief Justice Kourakis
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT
EVIDENCE – ADMISSIBILITY – EXCLUSIONS: PRIVILEGES
The applicant is a company that provides consulting services, namely on energy services. Over a six year period from 2011, the applicants provided strategy analysis and assistance to the respondents pursuant to consultancy arrangements. The services were provided on a contingency fee basis.
This is an interlocutory application by the respondents to strike out certain paragraphs of the Statement of Claim, which claims an entitlement to a 20 per cent contingency payment in respect of savings that would have been achieved.
The respondents bring this application on the ground that the applicant’s claim relies on communications made in the course of without prejudice negotiations. The respondents further contend that the claim is an abuse of process and is bound to fail.
Held, per Kourakis CJ, allowing the application:
1.Evidence of the making and rejection of an offer in the course of settlement negotiations is precluded by s 67C of the Evidence Act 1929 (SA).
2.All references in the Statement of Claim to the provision of the communications are struck out.

3. Leave granted to the applicant to amend its Statement of Claim accordingly.
Evidence Act 1929 (SA) s 67, s 67C; Evidence Act 1995 (Cth) s 131, referred to.
Commonwealth Director of Public Prosecutions v Citigroup Global Markets Australia Pty Ltd (No 3 privilege claims) [2021] FCA 1208; Unilever PLC v The Procter & Gamble Co [2000] 1 WLR 2436; Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11; State Bank of South Australia v Smoothdale No. 2 Ltd (No. 2) (1995) 184 LSJS 260; Dowling and Another v Ultraceuticals Pty Ltd (2016) 92 NSLR 155; Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377; Glass v Demarco (1999) FCA 482, considered.

TRANS TASMAN ENERGY GROUP PTY LTD v THE STATE OF SOUTH AUSTRALIA & ORS
[2022] SASC 87
KOURAKIS CJ:
Introduction

On 1 November 2021 Trans Tasman Energy Group Pty Ltd (Trans Tasman) brought an action in this Court against the State of South Australia (the State), and 61 metropolitan and regional councils (the Councils), seeking declarations that it is entitled to 20 per cent of the savings the respondents achieved on the charges levied by South Australian Power Networks (SAPN) for the provision of public lighting services throughout the State.[1] Public lighting services are classified as a negotiated distribution service under the National Electricity Rules (the Rules). The Rules required SAPN to negotiate the pricing of public lighting services with the respondents, in accordance with the Negotiation Framework prescribed by the Rules. The respondents retained Trans Tasman on a contingency basis to assess SAPN’s pricing for public lighting services in the 2010-2015 regulatory period and to assist them in their negotiations with SAPN (the consultancy arrangements). Pursuant to the terms of the consultancy arrangements, the respondents were liable to make payments to Trans Tasman proportionate to the savings or benefits they realised, measured against what would otherwise have been payable to SAPN.
[1] SAPN was formerly ETSA Utilities.
Trans Tasman provided strategy analysis and assistance pursuant to the consultancy arrangements over a six-year period from 2011. Trans Tasman alleges that as a result of its assistance, SAPN:
·substantially reduced its public lighting charges;
·agreed to remove the ‘Elevation Charge’ which entitled it to a payment for attaching its own assets to its own distribution infrastructure which resulted in a saving of approximately $1.4 million per annum;
·reduced public lighting charges from 1 July 2016 to reflect the removal of depreciation and interest charges pertaining to street lighting assets it had purchased from ETSA Utilities; and
·was found by the Australian Energy Regulator (AER) to have overcharged the respondents over the period of 2010-2015.
The consultancy arrangements into which Trans Tasman and the respondents entered included obligations on the part of the respondents to engage cooperatively and in good faith with Trans Tasman and, in the case of the State, to not unreasonably refuse an offer made by SAPN which would have the effect of reducing public lighting charges.
This is an interlocutory application brought by the respondents to strike out certain paragraphs of the Statement of Claim which claim an entitlement to a 20 per cent contingency payment in respect of savings that would have been achieved. The ground on which the respondents bring their strikeout application is that Trans Tasman’s claim relies on an alleged communication made at a time when the AER was arbitrating a dispute between SAPN and the respondents. Trans Tasman accepts that without prejudice negotiation privilege applied to the negotiations to resolve the dispute which was before the AER.
It is in the very nature of Trans Tasman’s pleaded claim that the only evidence which could be led in support of its claim are communications made in the course of the negotiations between SAPN and Trans Tasman, of which Trans Tasman is aware only because of the consultancy services it was providing. In those circumstances the respondents contend that the claim is an abuse of process because it is bound to fail. The respondents contend further that it would be an abuse of process to require them to first plead to those paragraphs of the Statement of Claim because any admission or denial would in itself waive the privilege or render it inutile.
Structure of the Statement of Claim
Paragraphs [4] to [6] of the Statement of Claim set out the street lighting use of services system (SLUOS) provided by SAPN as South Australia’s sole electricity distribution network service provider. The services provided were the use of SAPN’s public lighting assets and their operation and maintenance. SAPN provided lighting equipment, replaced failed lamps and managed the reporting of street lighting faults. Together these services comprised the public lighting services for which SAPN charged the respondents.
By a determination that AER made in 2010, the pricing of public lighting services was required to reflect the cost of providing those services. In accordance with that determination, SAPN charged the respondents on the basis of the number and type of streetlights, for which each of the State and the Councils were responsible, multiplied by a tariff set for each type of streetlight which reflected SAPN’s costs.
Paragraphs [7] to [14] plead the terms of the Deed of Engagement (the Deed) by which Trans Tasman and the State entered into their consultancy arrangements. Trans Tasman pleads that by the Deed, it agreed to provide its strategic and negotiation services for a term of 12 months commencing on 1 January 2011. The recital to the Deed states that its objective is to achieve financial benefits to be measured by what the State would otherwise have paid to SAPN (the State Objective).
The remainder of the summary of Trans Tasman’s statement of claim is not published. I have also de‑identified the communication which Trans Tasman pleaded was made by SAPN. This judgment is published only in respect of the proper construction of s 67 of the Evidence Act 1929 (SA) (the Evidence Act) and the principles governing the striking out of claims founded on without prejudice communications.
The Legislation
Section 67C of the Evidence Act provides:
67C—Exclusion of evidence of settlement negotiations
(1) Subject to this section, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings.
(2) Such evidence is, however, admissible if—
(a)     the parties to the dispute consent; or
(b)     the substance of the evidence has been disclosed with the express or implied consent of the parties to the dispute; or
(c)     the substance of the evidence has been partly disclosed with the express or implied consent of the parties to the dispute, and full disclosure of the evidence is reasonably necessary to—
(i) enable a proper understanding of the other evidence that has already been adduced; or
(ii) avoid unfairness to any of the parties to the dispute; or
(d)     the communication or document included a statement to the effect that it was not to be treated as confidential; or
(e)     the proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue; or
(f)      the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or
(g)     the making of the communication, or the preparation of the document, affects the rights of a party to the dispute; or
(h)     the communication was made, or the document was prepared, in furtherance of—
(i) the commission of a fraud or an offence; or
(ii) the doing of an act that renders a person liable to a civil penalty; or
(iii) the abuse of a statutory power.
(3) Subsection (1) does not apply to parts of a document that do not concern attempts to negotiate a settlement of a dispute, if it would not be misleading to adduce evidence of only those parts of the document.
The following should be noted.
First, s 67C governs only the admissibility, in civil and criminal proceedings, of evidence of the negotiation of a civil dispute. It follows that the common law still governs the privilege from production of documents required by court processes or other obligations in law.
Secondly, the structure of s 67C is that communications and documents of the kind it describes are not admissible unless they fall into one of the exemptions prescribed by sub-section (2). Section 67C of the Evidence Act thereby covers the field of the admissibility of evidence of the kind it describes. There is no space for a document to be admitted by reason of any common law rule unless it falls into one of the statutory exemptions to the privilege. Conversely, no rule of the common law can exclude evidence of a document or communication prescribed by s 67C on the ground of settlement negotiation privilege if that document or communication falls within an exemption.
On the enactment of s 67C of the Evidence Act the common law rules of settlement negotiation privilege can do no more than inform its proper construction in respect of the admissibility of documents produced, and communications made, in the course of settlement negotiations.
Thirdly, the use of the strong form of the determiner ‘any’ before the noun phrase ‘civil or criminal proceedings’ is significant. It includes all things which fall within the denotation of the noun it qualifies. It follows that evidence of settlement negotiations is inadmissible in civil or criminal proceedings no matter what the subject matter of those proceedings may be. The evidence is inadmissible in any civil or criminal proceedings, irrespective of the parties to the controversy and the subject matter of the litigation. The privilege is not limited to proceedings concerning the same matter in respect of which settlement negotiations were held. Indeed the prohibition enacted by s 67C extends even beyond the common law rule which is limited to proceedings substantially connected to that dispute. The wide scope of statutory privilege reflects the paramountcy given by the legislature to the policy consideration of promoting and facilitating settlement negotiations.
In Commonwealth Director of Public Prosecutions v Citigroup Global Markets Australia Pty Ltd (No 3 privilege claims),[2] on an application for production of documents, Wigney J considered the operation of s 131 of the Evidence Act 1995 (Cth)[3] and the common law rules governing settlement negotiation privilege in their application to litigation in which the issues were not the same as, but substantially connected to, the dispute over which there were settlement negotiations. Wigney J surveyed the historical development of the common law privilege.
[151]It would appear that without prejudice privilege was initially thought to have been limited to the circumstances where parties to the litigation engaged in failed settlement negotiations and one of the parties sought to tender against the other party at trial admissions made by that party during the negotiations. In Rush & Tompkins Ltd v Greater London Council [1989] 1 AC 1280, however, it was held that privilege extended to the situation where two parties in multi-party litigation engaged in settlement negotiations and one of the other parties to the litigation subsequently sought production or disclosure of documents recording or evidencing those settlement negotiations. Lord Griffiths (with whom Lord Bridge of Harwich, Lord Bandon or Oakbrook, Lord Oliver or Aylmeton and Lord Godd of Chieveley agreed) concluded (at 1305) that “the wiser course is to protect ‘without prejudice’ communications between parties to litigation from production to other parties in the same litigation” and that “the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties”.
[152]It would appear that Lord Griffith’s reference to “third parties” was a reference to parties to the multi-party litigation who were not parties to the relevant settlement negotiations – that is, Lord Griffiths was “limiting the protection from production ‘to other parties in the same litigation’”: see Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 523; Glengallan at [34]. It would now appear to be broadly accepted, however, that the so-called “extension” of the privilege in Rush & Tompkins may also apply to preclude production of documents evidencing settlement negotiations to parties involved in different litigation, but only in circumstances where the litigation in which that disclosure is sought has a sufficient connection with the litigation in which he negotiations occurred: see Mercantile Mutual at [18]-[20] (Pincus JA) and [35] (Byrne J); Yokogawa Australia Pty Ltd v Alstom Power Ltd (2009) 262 ALR 738; [2009] SASC 377 at [83]-[84] (Duggan J, with whom Sulan J agreed) and [139] (Kourakis J); Dowling v Ultraceuticals Pty Ltd (2006) 93 NSWLR 155; [2016] NSWSC 386 at [28]-[35]; NSW Ports at [53]‑[54].
[153]The extension of the privilege is “squarely based on the policy underlying the privilege”: Dowling at [35]; Mercantile Mutual at [35]. The policy underlying the privilege is to “encourage compromises by sparing the parties the embarrassment which might be caused to them if the negotiations fails and later their communications are liable to be put in evidence”: Mercantile Mutual at [18], [29] and [39]. (quoting Harrington v Lowe (1996) 190 CLR 311 at 323). The rationale for the privilege has also been said to be to encourage settlements and avoid the ‘damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency’: Rush & Tompkins at 1305; Mercantile Mutual at [34]; Dowling at [36].
[154]In that context, in Dowling, Hammerschlag J concluded (at [35]) that the “assessment of whether there is sufficient connections between the two disputes, to justify extension of the privilege to the second, should be made by reference to whether or not the policy (which did or would have protected the documents from disclosure in the first dispute) will be served by extending the privilege to the second dispute in the particular circumstances of the case”. That in turn led His Honour to conclude (at [37]) that the “court must assess whether the party resisting disclosure would have had a legitimate expectation that the material brought into existence for the purposes of settling the earlier dispute would not be used against in the later dispute”.
[2] [2021] FCA 1208.
[3] 131 EXCLUSION OF EVIDENCE OF SETTLEMENT NEGOTIATIONS
(1) Evidence is not to be adduced of--
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
Wigney J held that the common law privilege could not be extended beyond litigation of a matter which was substantially connected to the dispute that was the subject of settlement negotiations.
[158]In any event, it is difficult to accept that the policy or rationale underlying the privilege justifies extending its reach to preclude the production of documents evidencing negotiations in any subsequent proceedings, even if there is no connection between those proceedings and the proceedings in which the negotiations occurred. It may be accepted that the parties to a dispute would likely be inhibited from making admissions or statements in the course of settlement negotiations if they believe that documents recording those admissions or statements may subsequently be required to be produced, and may ultimately be able to be used against them, in related or connected proceedings. It is, however, highly doubtful that the negotiating parties would feel so inhibited on the basis that documents recording any such admissions or statements may be required to be produced in entirely unrelated or unconnected proceedings, in which they are not parties, in circumstances where there could be no question of the admissions or statements being used against them in those proceedings. Indeed, it is difficult to accept that the parties would be likely to even turn their minds to such a possibility.
Wigney J contrasted the common law privilege governing the production of documents used for the purpose of settlement negotiations with s 131 of the Evidence Act 1995 (Cth).
[159]ASIC also appeared to suggest that “doing away with” the connection requirement would be appropriate or desirable because it would bring the common law principles of without prejudice privilege into line with the operation of s 131 of the Evidence Act (Cth). Section 131 of the Evidence Act (Cth), which as noted earlier deals only with the inadmissibility of evidence of settlement negotiations, does not expressly include any requirements that the dispute or proceeding in which the settlement negotiations occurred be in any way connected with the proceeding in which evidence of the settlement negotiations was sought to be adduced. It may perhaps be accepted that it is somewhat anomalous that documents recording settlement negotiations in one set of proceedings may be protected by without prejudice privilege, yet those documents may nonetheless be inadmissible in later proceedings be reason of s 131 of the Evidence Act (Cth). That anomaly, if indeed it is one, is something which should, if thought necessary, be addressed by legislative law reform, as it effectively has in the Evidence Act (NSW) by the terms of s 131A in that Act.

Returning to s 67 of the Evidence Act, the fourth matter to note is that the exceptions prescribed by sub-section (2) largely mirror the common law exceptions. The construction of each of those exceptions can therefore properly be informed by the common law exception which they reflect.[4] However, the process remains squarely one of construction of the statutory text.
[4]    In Unilever PLC v The Procter & Gamble Co [2000] 1 WLR 2436, 2444, Robert Walker LJ identified the common law exceptions as follows:
Nevertheless, there are numerous occasions on which, despite the existence of without prejudice negotiations, the without prejudice rules does not prevent the admission into evidence of what one or both of the parties said or wrote. The following are among the most important instances.
(1)    … when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. …
(2)    Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence. …
(3)    Even if there is no concluded compromise, a clear statement which is made by one party to negotiations and on which the other party is intended to act and does in fact act may be admissible as giving rise to an estoppel. …
(4)    Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety.”…
(5)    Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence. …
(6)    In Muller’s case (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann L.J treated that issue as one unconnected with the truth or falsity of anything stated in the negotiations, and as therefore falling outside the principle of public policy protecting without prejudice communications. …
(7)    The exception (or apparent exception) for an offer expressly made “without prejudice except as to costs” was clearly recognised by this court in Cutts v Head, and by the House of Lords in Rush & Tompkins Ltd v Greater London Council [1989] A.C. 1280, as based on an express or implied agreement between the parties. It stands apart from the principle of public policy (a point emphasised by the importance of which the new Civil Procedure Rules, Part 44.3(4), attach to the conduct of the parties in deciding questions of costs). …
Accordingly, sub-paragraph (a) of sub-section (2) of the Evidence Act can be read properly, both textually and, having regard to the common law rules it replaces, to be a reference to the parties, and all of the parties to the dispute which was the subject of the settlement negotiations (the negotiated dispute). The same construction must be given to the words ‘the parties to the dispute’ in sub-paragraph (b). I will refer to those parties as the negotiating parties.
Sub-paragraph (c)(i) is calculated to ensure that when evidence of only some part of the negotiation is adduced in other proceedings, with the express or implied consent of the negotiating parties, it is properly understood in the context of other aspects of the negotiations. Again, the words ‘parties to the dispute’ in both the introductory words of sub-paragraph (c) and in the subordinate provision in (ii) must be given the same meaning and refer to the negotiating parties. Unfairness for the purposes of sub-paragraph (c)(ii) however protects only the negotiating parties from the selective withholding of consent by another negotiating party by implying consent to waiver, when the consent is withheld unfairly.[5]
[5] In Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 at [93], McLure J, with whom Murray and Parker J agreed, explained how settlement negotiation privilege might be impliedly waived by pleading without prejudice communications into evidence:
Thus, without prejudice negotiations may be “pleaded into evidence” in such a way that the privilege is no longer available, by analogy with the rule concerning legal professional privilege: Western Australia v Southern Equities Corporation Ltd (in liq) (1996) 142 ALR 57 at 601-602. The principle is not confined to the case where the party seeking to assert privilege raises a positive case: Data Access Corporation v Powerflex Services Pty Ltd (1994) AIPC 91-112.
Sub-paragraph (d) is self-explanatory and has no significance for the resolution of the dispute in this matter.
The construction of sub-paragraph (e) as it now stands is plain enough. The dispute referred to is the dispute which was settled. It allows the admission of communications made and documents prepared in settlement negotiations in proceedings brought to enforce a settlement agreement made in those negotiations. The predecessor to subparagraph (e) was not so clearly expressed. It provided:[6]
The communication or document relates to an issue in dispute and the dispute, so far as it relates to that issue, has been settled or determined …
[6] Evidence (Miscellaneous) Amendment Act 1993 (SA).
In State Bank of South Australia v Smoothdale No. 2 Ltd (No. 2) (Smoothdale),[7] Doyle CJ, with whom Prior and Williams JJ agreed, held that the ‘dispute’ referred to in the predecessor to sub-paragraph (e) was the negotiated dispute, however that produced the result that the communications made in the course of negotiations became admissible in any proceedings if the dispute was settled. That construction resulted in the paradox that the negotiating parties could speak freely and in confidence only if the settlement negotiations failed.
[7] (1995) 184 LSJS 260.
The litigation in Smoothdale was an action claiming damages brought by the State Bank of South Australia (the State Bank) against Smoothdale No. 2 Ltd (Smoothdale), which was the vendor of shares in another company (SBSANZ) to the State Bank. The State Bank also made claims against others who had played various roles in the sale. The State Bank’s claim was brought on the share sale agreement and for misleading conduct. The trial judge rejected a claim of settlement privilege with respect to correspondence marked without prejudice passing between solicitors acting for parties who had earlier successfully negotiated a settlement of a different dispute.
After the State Bank’s acquisition of the shares, actions were brought against SBSANZ in respect of dealings which pre-dated its acquisition by the State Bank. Those actions were settled on the basis that SBSANZ accepted certain liabilities. Those liabilities were discharged by payments made by the State Bank. SBSANZ then sought an indemnity from its insurer, FAI, in respect of that liability in litigation in which the State Bank was a party. That litigation was also settled. The trial judge in Smoothdale rejected a claim of settlement negotiation privilege made over correspondence, marked without prejudice, between solicitors for one of the parties which took action against SBSANZ and the solicitors for SBSANZ.
Smoothdale No. 2 Ltd contended that sub-paragraph (e) referred to the settlement of the negotiated dispute of the claims made against SBSANZ. The State Bank contended that sub-paragraph (e) referred to the dispute in the proceedings in which it was sought to admit the evidence.
Doyle CJ held that the issues in the proceedings as between the State Bank and Smoothdale No. 2 Ltd were not in issue in the claim made against SBSANZ, which was settled. Doyle CJ observed that at that time, the common law as to whether the privilege subsists after settlement has been reached was not clear. It is now tolerably clear that the common law privilege does subsist after settlement but, obviously enough, no privilege attaches to the concluded agreement itself nor to the communications on which a party relies to prove that agreement.[8]
[8]     In Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11, McLure J with whom Murray and Parker JJ agreed explained:
92     A binding contract brought into existence as a result of without prejudice negotiations is not protected by the privilege. Although the resulting contract is not privileged, the negotiations leading to the agreement remain privileged: Biala Pty Ltd v Mallina Holdings Ltd (1990) WAR 174 at 180; Bentley v Nelson [1963] WAR 89 at 93.
93     However, without prejudice negotiations leading to an agreement can be considered where there is a dispute as to whether or not an agreement to settle was made: Tomlin v Standard Telephones & Cables Ltd [1969] 1 WLR 1378; Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436 at 2444.
The construction given to the admittedly poorly drafted sub-paragraph (e) by Doyle CJ in effect resulted in the complete abrogation of any settlement negotiation privilege when the negotiations were successful. That is, with respect, a surprising result with no obvious public policy reason to support it.
Be that as it may, the amendment to s 67(e) has now made the legislative intention clear. In that context, sub-paragraph (e) as it now stands, the words ‘the dispute’ refer to the dispute in the course of which a communication was made or document created in an attempt to settle it.
Sub-paragraph (f) supplements sub-paragraphs (b) and (c). However, it should be noted that with respect to sub-paragraphs (c) and (f), more is required to make the evidence admissible than that it simply adds to the context of the evidence which has already been admitted. In respect of sub-paragraph (c) the evidence sought to be admitted must enable ‘a proper understanding’ of the other evidence that has ‘already been adduced’ or avoid unfairness to any of the parties to the dispute the subject of the settlement negotiations. In the case of sub‑paragraph (f), the other evidence must tend ‘to contradict or to qualify’ the evidence which has already been admitted.
Sub-paragraph (g) makes admissible communications or documents which affect the rights of a party to the dispute. Notwithstanding the use of the verb form, the proper construction of sub-paragraph (g) is to render admissible evidence only of a communication document which gives legal effect to the rights of a party.
In Glass v Demarco,[9] Emmet J considered an objection to evidence of an offer to compromise litigation tendered by a respondent to a bankruptcy petition. The debtor claimed that he had received an offer to compromise litigation in which he was engaged for a substantial sum which once accepted would allow him to pay his debts. The petition objector relying in part on s 131(2)(i) of the Bankruptcy Act 1995 (SA). Emmet J did not receive the evidence. His Honour held that the relevance to a right in the placitum is to an existing right and not a right which comes into existence upon the making of an offer.[10] The approach I take to the construction proceeds a little differently but I suspect the end result is much the same.
[9] (1999) FCA 482.
[10] Ibid at [10].
Literally understood, the exception extends further than the common law exception which is limited to oppressive or dishonourable conduct. That common law exception is more fully recognised in sub-paragraph (h) of s 67C. Sub-paragraph (g) allows the admission of evidence of the settlement negotiations in the hearing of claims of misleading or unconscionable conduct engaged in, and misrepresentations made, in the course of negotiations which fall short of fraud and which would vitiate the settlement agreement or found a claim for damage flowing from the making of the settlement agreement. Evidence of conduct which would vitiate the settlement agreement would also be admissible pursuant to sub-paragraph (e). Sub-paragraph (g) supplements sub-paragraph (e) by allowing the admission of evidence in claims for damages sought in addition to an order setting aside a settlement or independently of such an order. Sub-paragraph (g) may have additional applications, but it is not necessary to delineate its full scope. Importantly the examples I have given are ones in which a legal right is conferred on a party to the dispute by operation of the law on the conduct engaged in the settlement negotiations.
Sub-paragraph (h) allows the admission of settlement documents in criminal and abuse of process like proceedings. It has no bearing on the matter.
In Unilever PLCv The Procter & Gamble Co[11], Robert Walker LJ with Simon Brown CJ and Wilson J agreed, upheld the decision of the trial judge to strike out a pleading which alleged as an element of a cause of action what was said in the course of a settlement negotiation. His Honour also recognised that an expansive view to exceptions which would allow settlement negotiations to be admitted into evidence would undermine the policy rationale for the rule of preclusion:[12]
In my judgement the judge was right to conclude that it would be an abuse of process for Unilever to be allowed to plead anything that was said at the meeting either as a threat or as a claim of right. The circumstances were such that each side was entitled to expect to be able to speak freely, and their agreement to the meeting being arranged evinces that common intention. I would, if necessary, base my conclusion on the parties’ agreement to extend the normal ambit of the rule based on the public policy. But I do not think it is necessary to go that far. The Frankfurt meeting was undoubtedly an occasion covered by the normal rule based on public policy, and the pleading of the threat (or claim of right) has not been shown to come within any recognised exception. The expansion of exceptions should not be encouraged when an important ingredient of Lord Woolf’s reforms of civil justice is to encourage those who are in dispute to engage in frank discussions before they resort to litigation. The decision in Kurtz v Spence should no longer be regarded as good law.
[11] [2000] 1 WLR 2436.
[12] Ibid, 2448.
I note here that the ‘threat’ and ‘claim of right’ referred to in that passage are referencing elements of causes of action relating to intellectual property and not actions which might vitiate a settlement agreement.
Trans Tasman’s submissions
Trans Tasman opposed the respondent’s application to strike out on three primary grounds. First, Trans Tasman contended that the respondents did not have a legitimate expectation that communications would not be relied on to establish its entitlement to payment under the consultancy agreements. The reference to legitimate expectation is a reference to the judgment of Hammerschlag J in Dowling and Another v Ultraceuticals Pty Ltd.[13] The legitimate expectations gloss on the common law rule is problematic in that it limits the privilege by reference to the future uses which a reasonable person in the position of the negotiating parties might have contemplated. The possibility that the communications of negotiating parties might be admissible in proceedings which were not contemplated during the negotiations must in itself have a chilling effect on those negotiations. Be that as it may, his Honour’s statement was made in the context of the common law privilege. The common law rule limiting the privilege to related proceedings is, for the reason I have set out above, expressly abrogated by s 67C(1) which renders settlement negotiations admissible in any proceedings.
[13] (2016) 93 NSWLR 155 at [37].
Secondly, Trans Tasman contends that the subject matter of the dispute between it and the respondents is quite different from the dispute between the respondents and SAPN. That can be accepted. Even though there is a substantial degree of factual overlap the parties, the legal issues and the claims are fundamentally different. However, Trans Tasman’s contention reflects the common law position which has been abrogated by s 67C(1) of the Evidence Act. It must therefore be rejected.
Trans Tasman also relies on the exception in sub-paragraph (g). Sub-paragraph (g) is limited to the rights of the parties to the negotiated dispute in respect of that dispute. The communication did not affect the rights of either SAPN or the respondents. The making of a contractual offer, on the one hand, or its rejection on the other, is simply conduct in which, in the absence of any prohibition, any person may engage. Neither the making nor the rejection of an offer attracts any rights or obligations. It is only if an offer is freely accepted that mutual rights and obligations are conferred and imposed by the operation of the law of contract on that conduct.
Even if it be accepted that sub-paragraph (g) extends to the rights of a party to the negotiated dispute in respect of some matter other than that dispute, it is still of no assistance to Trans Tasman. A liability may have fallen on the respondents under the consultancy arrangements. However, no rights of the respondent were affected. Furthermore, Trans Tasman relies on that fact, not as a fact which gives legal effect to a right, but as a fact which affects its entitlement to contractual payments under the Deed and the Consultancy Agreement respectively.
Next, Trans Tasman contends evidence might become admissible pursuant to s 67C(2)(c)(i) to enable a proper understanding of evidence of the settlement negotiations which might be admitted because of the waiver by provision to the AER. Alternatively, Trans Tasman contends that the evidence may be admissible because it will tend to contradict or qualify that evidence and become admissible pursuant to sub‑paragraph (f). That contention is largely speculative and does not pay sufficient attention to the limitations on both exemptions, namely that it is admissible only to enable the ‘proper understanding of the other evidence’ or to ‘contradict or to qualify [that]’ evidence. On the face of the pleadings the earlier negotiations are background to the critical facts on which Trans Tasman seeks to rely, which is the making of the communication. It is not necessary to know of the communication to understand the prodromal exchanges which led to it. Indeed, in the absence of evidence of the communication, the context is rendered irrelevant.
Finally, Trans Tasman contends that even if the evidence is inadmissible, the strike out is not justified. They contend that there may be other evidence which is not subject to without prejudice privilege. However, they have not pointed to any such evidence and it is difficult to imagine how evidence of the making and rejection of an offer in the course of settlement negotiations can be lead in a form which would not fall foul of s 67C of the Evidence Act.[14] I acknowledge the course of the trial cannot be predicted with absolute certainty. If the evidence becomes admissible pursuant to one or more of the exemptions, an application may be made to amend. However, to require the respondents to plead to the communication before that eventuality transpires would be an abuse of process.
[14] Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377.
Conclusion
I strike out all references in the Statement of Claim to the provision of the communication. I grant leave to Trans Tasman to amend its Statement of Claim in accordance with these reasons.

[2022] SASC 87

19 August 2022